The
C H I NA BOOM
Why China Will Not Rule the World
Ho - fung Hung
c h r o n o lo g y
State Making and Capitalist Development in China 16 th to 21 st centuries 1581
With the influx of Japanese and American silver through trade and with the rise of silver as the principal medium of domestic bulk commercial transaction, the Ming government unified taxes into a single silver tax. This unification further enhanced the silverization and commercial growth of the economy.
1592–1598
Hideyoshi, a warlord who unified Japan, challenged China’s centrality in Asia’s international order by invading Korea. Ming China sent in troops to repel the Japanese force from Korea.
1635
The Tokugawa government of Japan started the seclusion policy, forbidding foreign trade. This prohibition stemmed the export of Japanese silver to China. Cut off from the Japanese silver supply, China came to rely solely on Europeans traders, who brought American silver to purchase Chinese products at such Asian colonial ports as Manila, Macao, and Batavia (today’s Jakarta).
1644
Peasant rebels toppled the Ming dynasty (1368–1644). The Manchus, a militant ethnic group originating in China’s northeastern border, invaded and swiftly took over all of China, founding the Qing dynasty (1644–1911).
1661–1683
The Qing government imposed an evacuation policy to depopulate most of the southern coastal area as a scorched-earth tactic to cut off supplies to the remaining Ming loyalists holding the Island of Taiwan, which had become a commercial hub of trade between Chinese and European merchants. The policy cut off foreign trade and the flow of
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American silver into China, fostering a contraction of the market economy. Maritime commerce revived in 1683, when all trade restrictions were revoked in the wake of the surrender of the Ming loyalists and the Qing incorporation of Taiwan.
1757
The Qing government decreed that all foreign trade had to be conducted in the port of Guangzhou.
1796–1804
Millenarian sects in Southwest China launched the White Lotus Rebellion. The incompetent imperial army was unable to contain it for nearly a decade despite the vast financial resources the state mobilized to fund the pacification campaign. In the aftermath of the rebellion, the Qing state was substantially weakened.
1839–1842
To stem the massive outflow of silver caused by China’s purchase of opium that the British grew in South Asia, the Chinese government banned the opium trade. Britain responded by initiating the Opium War in the name of defending free trade. After China was defeated, the Nanking Treaty was signed, which opened up Shanghai and other coastal cities for free trade. Hong Kong was ceded to the British as a colony.
1850–1864
Millenarian sectarians claiming to have received a revelation from Jehovah launched the Taiping Rebellion, which swept across southern and central China, subjugating some of the most prosperous commercial cities, including Suzhou and Hangzhou. The Qing state suppressed the rebellion with foreign support and local militarization, but the imperial state was further weakened in its wake.
1861–1895
The ailing Qing state initiated the self-strengthening movement that sought to foster state-financed and imported-technology-based industrial enterprises, including military industries. The movement ended in 1895 when the Japanese navy crushed the Chinese navy, built as part of the movement’s achievement, in the Sino–Japan War of 1894–1895. Taiwan became a Japanese colony.
1911
The Republican revolution toppled the Qing dynasty, but the revolutionaries were too weak to form a new centralized state. Provincial military strongmen, who had prospered in the last years of the Qing dynasty, took over and fought with one another, leading post-Qing China into an unstable period dominated by these rival warlords.
1921
The Chinese Communist Party (CCP) was founded in Shanghai. Under Soviet supervision, the CCP formed a united front with the Republican revolutionaries, who established the Nationalist Party (Kuomintang, KMT) to prepare a military offensive against the warlords.
1927
When the KMT–CCP united front, with the Soviet Union’s military and financial support, was about to win national power and subordinate warlordism, the KMT started an anti-Communist purge, eliminating
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CCP organizations in major cities. When CCP members were rounded up in coastal urban centers, the CCP turned to the countryside and organized the peasant-based Red Army. The KMT–CCP civil war began.
1937
Japan invaded China proper. The second KMT–CCP united front was formed against Japan.
1945
Japan surrendered. The Soviet army swiftly took over Japan’s military-industrial base in China’s Northeast, handing over the industrial facilities and heavy weaponry there to the CCP’s Red Army, which had so far been made up of no more than poorly equipped rural guerillas. The KMT–CCP civil war resumed.
1949
The CCP defeated the KMT in the civil war, driving the latter to Taiwan, which the United States has protected from a Communist takeover ever since. The CCP founded the People’s Republic of China in mainland China. The Communist governments’ first major initiative was land reform, which broke down large landholdings and redistributed them to peasant households.
1950–1953
The Korean War broke out. China entered the war, and the United States led other nations on its side in the Cold War to impose an embargo on China.
1953–1956
The Chinese government initiated the Socialist Transformation campaign to nationalize most urban enterprises and integrated peasant households into rural collectives. Under Soviet financial as well as technical support, the CCP sought rapid state-led industrialization.
1958–1961
Mao launched the Great Leap Forward campaign, in which large-scale People’s Communes were formed and became the only legitimate economic and social organizations in the countryside. Peasants were mobilized through the Communes to build local furnaces for steel making. The ill-coordinated campaign and the wasting of the vast labor force to make substandard steel led to a large-scale famine. During this period, Soviet–China relations deteriorated as China aspired to greater independence from the Soviet Union.
1966–1969
Mao, sidelined in the aftermath of the famine, staged a comeback by launching the Cultural Revolution, mobilizing youth Red Guards to seize power from allegedly corrupt bureaucrats. By 1969, most opponents of Mao in the CCP had been purged, and the whole government came to be staffed by Mao loyalists. Mao disbanded Red Guard organizations and sent the former Red Guards to the countryside to be “reeducated” by the peasants.
1969
The Soviet–China split escalated into border military conflict between the two countries.
1972
Nixon visited China in order to forestall Soviet expansion while the United States was losing the Vietnam War. China was motivated to end
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the international embargo against it and to seek new allies against the Soviet Union. After the visit, China’s relations with the United States moved toward normalization, and China’s trade with the U.S. side of the Cold War accelerated.
1976–1980
Mao died in 1976. After a brief intraparty struggle, Deng Xiaoping became the top leader of the CCP in 1978. The CCP started to adopt market reform by dismantling the People’s Communes. Though the state still owned land, peasant households obtained the “right to use” on small plots of land from the government and could sell their products on the market. The peasant economy and the market economy revived in the countryside. Township and villages enterprises, nominally owned by local governments, took off in rural areas. Special Economic Zones were set up in 1980 to attract foreign direct investment, mostly from Hong Kong initially.
1984–1989
With the success of market reform in the rural areas, the CCP started urban reform, which consisted of price liberalization and a reform of urban state-owned enterprises. Unchecked inflation and rampant corruption erupted in the cities.
1989
Inflation and corruption fueled the spread of urban discontent. Growing inequality and falling living standards in cities, coupled with diffusion of liberal thoughts among students, culminated in widespread urban revolts in 1989. The revolt started among the students who occupied Tiananmen Square in Beijing in early summer, but it also spread to workers and many other cities across the country. The revolt ended in a bloody crackdown by the People’s Liberation Army in Beijing. In the aftermath of the crackdown, Deng made Jiang Zemin the CCP’s new top leader while maintaining his own leadership behind the scenes.
1992
In response to the comeback of the old guard, who resisted further market reform after the Tiananmen crackdown in 1989, Deng Xiaoping traveled to major cities in southern China and praised their achievements in economic liberalization. He made several speeches during his tour to assert that market reform must go on. His speeches unleashed a new surge of market reform and commercial expansion. Local governments and private enterprises alike raced to invest, and state banks opened the floodgate of easy loans. These acts overheated the economy, causing inflation, fiscal deficit, and current-account deficit.
1993–1994
The government adopted a series of policies to cool down the economy and to resolve the fiscal and current-account deficits. They included drastic devaluation of the renminbi to boost exports, fiscal reform that made local governments surrender a larger portion of revenue to the central government, and a tightening of bank credits.
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1998
Zhu Rongji became premier. He deepened the reform of state-owned enterprises. A large number of these enterprises were privatized, though in many cases the government continued to be the sole or majority stakeholder. Massive worker layoff from state enterprises started. Housing reform was also begun, privatizing apartments that used to be rationed by state enterprises and local governments. An urban private-housing market was created.
1999–2000
The economic overheating and investment boom, followed by credit tightening in the mid-1990s and the fallout of the Asian financial crisis of 1997–1998, led to a slowdown of the economy. A rapid rise in nonperforming loans in the banking system ensued. In response, the government bailed out the troubled banks by creating four asset-management companies, which took over bad loans from the four big state banks (Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China). Having unloaded their most toxic assets onto these companies, the banks expanded or were listed overseas one after the other.
2001
China gained accession to the World Trade Organization. China’s trade surplus has soared ever since. China invested a majority of its foreign exchange reserve in U.S. Treasury bonds.
2002
Hu Jintao became head of the CCP.
2006
Agricultural taxes were abolished as part of the initiative to improve development prospects and living standards in rural China and in response to escalating antitax unrest there. Other policies developed at this time include increasing government investment and available credits in rural areas.
2008
The new Labor Contract Law came into effect. The law made it more difficult for firms to fire workers and ensured that firms would contribute to workers’ social security accounts. The legislation also reflected the central government’s intention to move China away from labor-intensive manufacturing, to increase the wage share in the economy, and to stem mounting labor unrest.
2008
China surpassed Japan to become the largest foreign holder of U.S. Treasury bonds.
2008–2009
In response to the global financial crisis triggered by the collapse of Lehman Brothers in the fall of 2008, the Chinese government introduced a sizeable stimulus, which was made up of fiscal and financial stimulus via state bank lending. The stimulus sped up and expanded infrastructure constructions. It enabled China to rebound swiftly from the initial fallout of the global crisis, which had made its export engine stall.
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2011–2012
The stimulus started to lose steam, and local government’s heavy indebtedness resulting from the stimulus began to hamper economic growth.
2012
Xi Jinping became head of the CCP. The new leadership suggests that it will revive the economy by speeding up urbanization and ďŹ nancial liberalization.